MKT558 Tutorial Chapter 4 - Case Study PDF

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Case study: Spotify streaming develops new revenue models Spotify™ is a streaming music service originally developed in 2006 in Sweden and launched in 2008. Spotify Ltd now operates as the parent company in London, while Spotify AB manages research and development in Stockholm. This case study about the online music subscription service illustrates how different elements of the mix can be varied online. It also highlights success factors for developing an online marketing strategy. At the time of writing, Spotify was valued at more than $23 billion as it filed for stock market listing. It has over 159 million users and 71 million premium members who pay for services, which raised over $5 billion in revenue (Young, 2018).

Context Spotify was not the first online entrant to online music services, but it was an innovator in marketing approaches, technology and subscription options that have enabled it to become a market leader in music subscription. In 1999, Napster™ launched the first widely used service – ‘free’ peer-to-peer (P2P) music-sharing channel. This innovative approach to sharing music became subject to legal challenges from major record companies, and Napster lost revenues on music sales and was eventually forced to close. This was not the end of sharing digital music for Napster as the brand was purchased and it has had several owners such as Roxio, Best Buy and then became part of the Rhapsody music services, in direct competition to Spotify in Europe as its US operation was shut down. The importance of Napster today is perhaps that it demonstrated to the world what was possible in terms of sharing digital music. Figure 1 shows the growth in revenue for streaming in the music industry. Figure 1, shows the growth in revenue for streaming in the music industry. Spotify has grown into a significant global brand and is driving market growth by focusing on delivering more personalized music playlists, e.g. Spotify.me and mytimecapsule (Guditch, 2017). Figure 1: U.S Music Industry Retail Revenue from 1999 - 2016

Value proposition In addition to the core music listening service, Spotify has developed other features to add to the value of the service, which have also given opportunities to spread awareness of the site through comarketing. Spotify claims that its users are highly engaged, with the average multiplatform user spending 146 minutes a day using the service. Between 2013 and 2014 the share of users listening on mobile tripled, although more than 50 per cent of sessions are still on desktop. In 2017, the introduction

of the ‘Rise’ program, in conjunction with the new awards ceremony, aims to encourage emerging artists and highlight excellent talent.

Advertising Spotify has developed a range of innovative advertising formats to build its revenue, mainly from its free subscribers. Spotify uses data-driven analytics to help determine its ad spend and target markets; users’ data insights identify behavior, which then inform the ads, the content and the messages that promotional tools and media can use. For example, the ‘2018 Goals’ campaign used Spotify users’ habits to create humorous resolutions and personal aims and presented these using billboards. The campaign worked really well as it tapped into music lovers’ psyche, and the music we listen to is part of who we are (Nudd, 2017).

Competition Spotify faces competition from existing online music services such as Apple Music™, but given that this is an evolving marketplace, other major competitors can be expected. For example, Google launched Google Play Music™ subscription service via YouTube, and Apple purchased the Beats™ subscription service earlier in the year. Amazon also now offers Prime Music™ subscription to customers who are in its loyalty program.

Marketing Unlike in the ‘dot.com era’ when startups with global aspirations launched using TV campaigns, Spotify’s growth has taken a more modest approach, relying on word of mouth, PR and co-marketing rather than big ad budgets. The launch of Spotify in the US used private ‘Beta’ invites to create a buzz, as those with access shared their use of it in social media (and through word of mouth). The music streaming service went live in October 2008, and it kept its free service as invitation only – something that had been in place while it was in the final stages of development prior to public launch. The invitation-only element was a vital part of the platform’s rise. Not only did it help manage the growth level of Spotify, but it also helped create a viral element to the service, with users each having five invites at first to share with their friends. Spotify has used co-marketing and partnerships with publishers to increase its reach by embedding different formats of widgets on other sites. For example, Drowned in Sound has a monthly playlist that it embeds within its blog, which encourages its readers to engage with Spotify. Other partnership services enable festivals and charities to engage their audience through Spotify playlists. To grow its audience beyond its traditional younger audience, Spotify today invests more in campaigns. In 2013 it launched a multiplatform campaign, with a 30-second ad spot during the season premiere of NBC’s The Voice. Sixty-second versions of the commercial aired in The Tonight Show with Jay Leno and Late Night with Jimmy Fallon. In 2014 Spotify launched a ‘Music takes You Back’ ad (www.youtube.com/watch?v=BaDe9Pgkpl4) in the UK and US, which featured in cinema, digital signage and online. It centers around three videos that showcase three different people’s stories through the medium of Spotify, Facebook, text messages, Skype and Instagram. Its aim is to show how Spotify can bring people together through its integration with social media. Spotify decided not to use TV, creating 75- to 90-second videos rather than the typical 30-second TV ad break slots. References: 1. https://www.vox.com/2018/2/28/17064460/spotify-ipo-charts-music-streaming-daniel-ek 2. Textbook: Digital Marketing: Strategy, Implementation, and Practice. Dave Chaffey & Fiona EllisChadwick (7th Edition), Page 225

Discussion Question: Assess how Spotify competes with traditional and online music providers by reviewing the approaches it uses for different elements of the marketing mix....